CEZ Sells More Future Power Output to Shield From Price Drop

Aug. 14 (Bloomberg) -- CEZ AS, the Czech Republic’s biggest
utility, increased forward sales of electricity to guard against
a further slump in power prices.

The share of CEZ’s expected next-year production sold in
January to July rose to 72 percent from 65 percent in the same
seven-month period of 2012, the company said yesterday. Two
years ahead the hedging rose to 53 percent from 32 percent.

CEZ is attempting to lock in future revenues as Europe’s
economic crisis curbs demand for electricity. A further drop in
its price is possible, Chief Financial Officer Martin Novak told
journalists yesterday after the Prague-based company said its
second-quarter profit tumbled 16 percent from a year earlier.

“CEZ defied most analysts’ expectations and did not raise
its profit outlook for this year,” said Josef Nemy, an analyst
at Komercni Banka AS, who has a hold recommendation for the
stock. Higher pre-sales show “the company correctly anticipated
the downward trend in electricity prices and may even fear their
further decline,” he wrote in a report to clients yesterday.

RWE AG, Germany’s second-largest power company, said today
that while it’s benefiting from having sold most of its power
production two or three years in advance, it expects the
positive impact of hedging to decrease year by year.

Power for next-year delivery in Germany, where CEZ sells
part of its output, has dropped 17 percent this year and touched
a record-low 36.20 euros a megawatt-hour last week, according to
data compiled by Bloomberg. The average price of CEZ’s pre-sold
output is about 46 euros for next year, 42.5 euros for 2015 and
41 euros for 2016, Trading Director Alan Svoboda said yesterday.

Expansion Plans

CEZ’s expansion plans have been set back the falling prices
and the collapse of Premier Petr Necas’s government in June.

The utility will delay a decision on the supplier of two
new reactors at Temelin, originally scheduled for the end of
2013, by at least one year until the new government completes
its long-term energy strategy and provides guarantees that the
project will be profitable, Chief Executive Officer Daniel Benes
said yesterday.

U.S.-based Westinghouse Electric Co. and a Russian-Czech
group led by Rosatom Corp. are vying for the contract, valued at
about $10 billion.

“Without state guarantees, the project would be lossmaking
under current conditions and would very significantly increase
CEZ’s indebtedness,” Komercni Banka’s Nemy said in response to
e-mailed questions from Bloomberg News.